Greeting to you all crypto enthusiasts, on my post today, I will be giving out a report on how to identify the support and resistance breakout.
After the article, we get to have an understanding of carrying a safe trade with the zones breakout whereby, traders get to reduce their level of risk by using the support and resistance as there take profit or Stop loss zones. The questions asked by @pelon53 are answered in the following order below.
The support and resistance zones are the two zones where the market bounces and relocates, the support zone known as the minimum part where the market starts rising, and the resistance zones as the maximum price an asset got to before it start falling.
Locating the support and resistance zone on a chart is the proper and most reliable way of trading as it helps traders to eliminate maximum risk and give details of what the market is doing, when support and resistance are identified, traders can use the knowledge of it to execute a trade.
- ADVANTAGES
Identify Entry and Exits: - with the help of locating supports and resistance, traders can locate a perfect entry and exit to carry on a trade.
Set Target and stop-loss - Another advantage of locating the support and resistance is that traders can use these zones to set the stop loss limit with their take profit target, when in a buy trade, the support can be used as the Stop loss area, while the resistance as the Target point.
Identifying trends - with the help of locating support and resistance, we get to see the true market trend, wherein that case, we know what trend the market is, for instance, if the resistance is depicting higher highs, that an uptrend, and if the support is depicting lower lows, that s a downtrend movement.
Can be used as confluence trading - Indicator traders can boost the strength of their trend by identifying the support and resistance zone, in this case, when they get to see the same signal from the two, it signifies that the market is good to go and can go on to place their entry.
The breakout of support and resistance is the process whereby the market breaks the support or the resistance level and in this case, a new trend is mostly expected to occur.
The resistance breakout is considered when the market breaks its level of falling as expected, but rather, the market makes a new phase of trending high.
The resistance breakout was identified with the help of the RSI indicator in the image above, the RSI breaks the overbought region when the market break the resistance, whereby, in this case, we are expected to see a new bullish movement.
The support zone is the zone where the market stops from falling and starts rising, which this position is mostly used as an entry for traders who wants to purchase a market, with the instinct of buying low and selling high, when the support level breaks, we saw that the market doesn't quite falling, rather it keeps portraying lower lows, in this case, a new bearish trend is expected to occur, whereby the support level will likely retest to the resistance level in the coming trend.
The support breakout was identified with the support of the RSI indicator in the image above, the RSI breaks the oversold region when the market breaks its support level, whereby, in this case, the market took a large low volume to the sellers.
A false breakout is when the market gives a signal for a new trend, but rather, the market when back to its previous level, this might have a great effect on traders as it could have given bad misconception upon the trader psychology, especially the impatient one.
False support breakout - A false support is seen when the market breaks the point its support to start rising, but instead, it breaks the support zone to the bottom, which might get traders thinking a new trend is expected to occur, but rather, the market returns to its previous support level, and if possible, it might even break a new trend and depicts a bullish trend rather.
False resistance breakout - A false resistance is seen when the market breaks the point of its resistance, where it is supposed to start falling, but instead, it breaks the resistance zone to the top and the market start rising more, which might get traders thinking a new bullish trend is expected to occur, but rather, the market returns to its previous resistance level.
How to avoid trading at that time - The best key to trading is patience and not to follow the trend, there is always an entry for everyone, the best way to counter false breakout is to wait for at least 3 or 4 candles to depicts after the breakout, if traders could see that the breakout is ready, and the market is stable with 4 candles, then it's a good position to enter if otherwise, traders should wait and confirm if the breakout will retrace or not.
I will be executing a sell trade on WAVESUSDT after I noticed the resistance to have a breakout in the past few days, the market as well has gone bullish which therefore any moment now, a retracement is expected to occur.
after noticing my entry I execute a sell order of wavesusdt, I then set in my stop loss and take profit in 1:1, the stop loss was at the previous resistance level, while the take profit in a 1:1 risk-reward.
I execute the short trade on the demo account to sell wavesusdt at the entry point of 26.54USd, then my take profit at 20.73USD, and then my stop loss at the price of 32.81USD. The proof of my transaction is below.
On my support breakout zone, I also will be executing a sell trade on FTMUSDT after I noticed the support zone to have a breakout, I also was able to identify more than 4 candles of breakout which proves there is no way the market is retracing or the breakout might be false, so with this, I was certain the breakout is ready to stay and the market might keep going down.
After noticing my entry I execute a sell order of Ftmusdt on a demo account, I then set in my stop loss and take profit in 1:2, the stop loss was at the previous support level, while the take profit in a2:1 risk-reward.
I execute the short trade sell ftmusdt at the entry point of 1.2266USD, then my take profit at 0.8093USD, and then my stop loss at the price of 1.4564USD. The proof of my transaction is below.
After a while, I went back to the chart to see how predictable my prediction is, and I could see that the market is already showing more profit as I now have a profit level of 14USD.
On the above writeup, I have been able to explain how to trade the support and resistance breakout, and the precautions traders take to avoid trading on false support or a false resistance breakout.
To best counter any false breakout, we can make use of other indicators to filter out the false breakout, most importantly, it is advised if a trader can wait for 4 or more candles before deciding to buy or sell after a zone break breakout.
CC: @pelon53